China Stimulus Tweaks Don’t Redress Imbalances

China’s stimulus package has been criticized for emphasizing construction and infrastructure spending at the expense of social services.

Not long after China’s government announced a four trillion yuan investment plan to counteract the effects of the financial crisis, it was criticized for slighting the kind of social supports that are a large component of other countries’ stimulus efforts. Many foreign and domestic economists called on the government to spend more on the kind of programs — such as health care, housing, education and other programs — that would put more money directly in Chinese consumers’ pockets. And before the legislature’s meeting began last week, there were hopes that the government would announce a major increase in social spending.

The mostly vague promises of better job programs and improved health-care coverage that were delivered in last Thursday’s speeches did not meet those high expectations. And it’s clear that the economic impact of the stimulus plans, while likely sizable, is not as large as the initial headlines suggested. Since the central government is directly funding only 1.18 trillion yuan of the investment plan, and only part of that is new money, the amount of actual stimulus is probably much smaller than 4 trillion yuan.

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But the government has made some adjustments to how it plans to spend the money, reducing funds for infrastructure and reallocating the money to other programs (source: National Development and Reform Commission):

Components of plan, in billions of yuan

November 2008

March 2009

Change

Health care and education

40

150

110

Technical upgrading and R&D

160

370

210

Public housing

280

400

120

Energy conservation and environment

350

210

-140

Rural infrastructure

370

370

0

Post-earthquake reconstruction

1000

1000

0

Transport and power
infrastructure

1800

1500

-300

Total

4000

4000

The government did not go out of its way to publicize the changes. They were first mentioned in the 18th footnote of the National Development and Reform Commission’s annual work report, and not at all in the report’s English version. That probably won’t do much to placate Chinese critics who say the government stimulus plans are not transparent. In subsequent discussions at the ongoing meeting of the legislature, officials have said the changes took into account the public response to the original plan, but they have not explained why some areas were given more money and others less.

“We have listened to opinions from all parts of society, including the views of experts, local governments and ministries, as well as public opinion, so some adjustments have been made,” commission head Zhang Ping said at a news conference Friday. Mr. Zhang said there would likely be more changes to the stimulus in response to changing economic conditions.

The revised stimulus plan looks a bit more like what outside economists say the government should have done originally. Spending on social services now makes up 4% of the plan, instead of the 1% in the initial version. Expanding public housing gets 10% of the total, up from 7% previously, and other infrastructure projects somewhat less. That seems to be a gesture to growing concerns that China is preparing to build a lot of infrastructure that it doesn’t really need.

Critics are unlikely to be completely assuaged, however. The plan’s emphasis on funneling money to infrastructure and industry, rather than households, has not fundamentally changed. After the initial plan, the government approved 10 more “industry revitalization” plans for sectors hit hard by the downturn. Mr. Zhang said some of the stimulus funds would go to support those initiatives. Such supports to industry in fact got the biggest boost: subsidies to companies for upgrading factory equipment and doing research more than doubled in the revision, to 9% of the total.

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